Lufthansa buys BMI in a major challenge to British Airways

Germany's biggest airline, Lufthansa, has bought up BMI - making it the second most powerful force in British aviation.

The surprise deal will give Lufthansa more take-off and landing slots at Heathrow than any other airline except British Airways.

There are fears that the German carrier's rising power could further stifle competition in the airline industry.

Stretching its wings: Lufthansa will have more slots at Heathrow than any other airline apart from British Airways

High fuel costs have already forced more than two dozen European carriers out of business this year.

Lufthansa's audacious action comes as BA is trying to strengthen its own hand at Heathrow.

Britain's flag carrier is trying to forge an alliance with American Airlines, a move bitterly opposed by arch-rival Sir Richard Branson, who controls Virgin Atlantic.

Branson last night offered to merge Virgin with the enlarged Lufthansa to create a force capable of standing up to BA. Virgin Atlantic boss Steve Ridgway said: 'There is now a major opportunity to do that and create a new and even more effective competitor to BA.'

The takeover of BMI - the former British Midlands carrier - will hand an eye-watering profit to its chairman Sir Michael Bishop.

The airline veteran is selling his 50 per cent stake in BMI to the German carrier for an estimated £318million.

Lufthansa already owned 30 per cent of BMI. The remaining 20 per cent is in the hand of struggling Scandinavian carrier SAS, which wants to sell.

BMI can trace its origins back to 1938, although the airline did not start using the name British Midland until 1964.

Bishop, who built up the airline during the 1960s, is a pivotal figure in breaking BA's dominance of the skies.

But even he could not avoid the financial hurricane that has swept through the airline industry.

BMI, which includes no-frills operation bmibaby , warned it would slip into the red this year due to the spiralling price of aviation fuel.

Lufthansa last night indicated that the takeover, which will need regulatory approval, should be completed by early next year.